Production-Linked Incentive (PLI)
Scheme

Context

Govt believes that the PLI scheme has been successful in enhancing the manufacturing sector

Former RBI Governor Raghuram Rajan expressed doubts about the effectiveness of India's PLI scheme

PLI Scheme

Eligible companies receive financial incentives based on their incremental production or sales.

Objectives: Boost competitiveness, attract investment, create employment, and enhance exports.

Introduced by the Indian government in 2020 to promote domestic manufacturing in specific sectors.

Significance of subsidizing
domestic sectors:


Financial assistance helps invest in R&D, technology, and infrastructure.

Supports import substitution and strengthens domestic manufacturing.

Subsidies stimulate job creation and reduce unemployment rates.

Subsidies encourage research and development.

Subsidies support growth, competitiveness, and competitive pricing.

Challenges of effective
implementation of PLI

Ensuring adequate funding while balancing the financial burden.

Ensuring beneficiary companies meet prescribed benchmarks.

Timely disbursal of incentives and monitoring compliance by beneficiary companies.

Companies may become reliant on subsidies and neglect competitiveness.

Identifying the right sectors and companies for incentives

International best practice:
Vietnam Model

Focus on vocational education and training sessions to equip the workforce.

Plethora of free trade agreements (FTAs)

Relatively large, well-educated labor force

Tax incentives

Low-cost manufacturer with competitive labor costs

Way forward

Addressing the skill gap through improved education

Promoting R&D and collaboration

Enhancing access to affordable finance, especially for SMEs

Simplifying regulatory frameworks and reducing red tape

Adequate and modern infrastructure is essential

Strengthening supply chain integration for efficiency